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Luxury, Private Labels Offer Hope but Can’t Stem Saks’ Red Ink

Despite its second-quarter net loss of $11.3 million, Saks Inc. thinks luxury might be set to rebound and private labels can lift its department stores.

R Brad Martin

R. Brad Martin

Photo By WWD Staff

NEW YORK — Luxury’s improvement and private label’s growth gave Saks Inc. a glimmer of hope despite wider losses in its second quarter.

A better outlook for luxury may have helped the firm turn a corner in its efforts to resuscitate its Saks Fifth Avenue operation, and growth in private label is enabling Saks to begin to differentiate its struggling department stores.

“Luxury feels better in the major markets,” said R. Brad Martin, chairman and chief executive of the Birmingham, Ala.-based retail firm. “Sales at Saks Fifth Avenue in New York, Beverly Hills, San Francisco, Chicago and Boston were all strong.

“And overall, the luxury market feels marginally better,” he continued during a conference call with analysts. “We saw good growth in the quarter in jewelry and will continue our focus on shoes, handbags, contemporary women’s and designer apparel where we are generating solid sales growth and improved returns on investments in these categories.”

Although signs of improvement abound, for now the retailer will have to live with a deeper second-quarter loss.

Staggered by a battery of punches, including flat net and negative comparable-store sales, promotional pressures, higher costs and the loss of credit card revenue, the owner of nameplates such as Saks Fifth Avenue, Proffitt’s and McRae’s, among others, recorded a net loss of $25.8 million, or 18 cents a diluted share, for the three months ended Aug. 2. By comparison, last year the firm had a loss of $20.4 million, or 14 cents.

Earnings benefited from an aftertax gain of $2.7 million, or 2 cents, from the sale of closed stores. Excluding that gain, earnings per share matched the Wall Street consensus estimate.

Sales for the period stood pat at $1.24 billion, but same-store sales dipped fractionally, or 0.6 percent.

Saks’ results were no surprise, however. Not only was EPS in line with estimates, but trading in the firm’s shares was slightly lighter than normal. The company’s stock closed down 1 percent, or 12 cents, to settle at $12.13 in Tuesday’s New York Stock Exchange session.

In addition to the flat sales and weak comps, other slings and arrows included an 80 basis-point expansion of selling, general and administrative costs to 26.5 percent of sales. Saks said the higher cost resulted primarily from the sale of the firm’s credit card accounts and receivables to Household Bank, which would have reduced those expenses by $16 million. The sale of the portfolio depleted earnings before interest and taxes by $10 million at the Saks Department Store Group and by $6 million at Saks Fifth Avenue Enterprises.
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